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6/16/2006
04:20 PM
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Analysis: eBay's Growth To Come From Community, Not Acquisitions

EBay's Meg Whitman is looking to justify the Skype acquisition with a power-of-three pitch to shareholders. But look at what eBay is doing--not what it's saying.

Eager to convince investors that eBay's Skype acquisition makes sense, president and CEO Meg Whitman has been promoting the power of the company's three flagship brands--eBay, PayPal, and Net telephony company Skype--to work together to increase revenue.

"We want to build the synergies between these businesses," Whitman said at a shareholder conference in Las Vegas last week, "so that one plus one plus one equals a lot more than three."

At eBay's user event, also in Las Vegas last week, Whitman talked about the new ability for sellers to put Skype buttons on their listings to solicit calls. Still, the power-of-three pitch seems more of a show for investors than anything else. More likely, eBay's continued growth will come from empowering its 193 million members. That includes providing the company's online community with new technology to improve transactions. It's what Whitman described to shareholders as "making the platform more valuable for buyers and sellers." A series of recent announcements supports that point.

Tech-Enabled Community

EBay last week teamed up with wiki application provider JotSpot to offer the eBay Community Wiki, a Wikipedia-style resource where buyers and sellers can exchange best practices and tips. Wikis, collaborative Web sites that can be edited by their users, are structurally better suited to serve as information resources than online threaded discussion forums. They're just the thing for an organization that wants to shift the burden of content creation to its members.

EBay's Whitman practices new math

EBay's Whitman practices new math

Photo by Francois Lenoir/Reuters
EBay has always viewed itself as a community-driven company, says Joe Kraus, JotSpot's co-founder and CEO. "Community is at the heart of what they've done," he says.

The wiki announcement comes just after eBay execs said the company will enter the online advertising market with a service called eBay AdContext. In the way that Google's AdSense lets affiliated publishers host Google ads on their own Web sites, AdContext will let eBay Affiliates promote auctions on other sites and collect a commission if a sale is made.

Also last week, online information sharing service Kaboodle said it's partnering with eBay to provide a new "social collecting" destination called MyCollectibles. Collectors make up a huge customer base for eBay, and the site lets them share information and photos about collectibles such as comics and sports memorabilia.

Finally, eBay's preoccupation with the health of its community is evident in the multiyear strategic partnership it struck with Yahoo last month to let Yahoo place ads it sells on eBay and for eBay to use PayPal for online payments. The arrangement appears to be designed to defend against the encroachment of Google as much as to improve life for eBay and Yahoo members.

EBay has reason to focus on the strength of its community: That's where the money is. The eBay community is also the one thing competitors can't easily replicate.

EBay has a lot going for it, Whitman says. It has seen a combined annual growth rate of 51% since 2001. It processes 345 million searches for products daily. If it were classified as a seller of goods rather than a market for transactions, it would qualify as the 11th largest retailer worldwide, just behind Sears and Target. Perhaps more telling, it counts some 30,000 developers using its APIs.

"We think the opportunity is enormous for this business," Whitman told shareholders. EBay has 14% of the global e-commerce market and 1.3 million people who depend on the company to make their living, in one sense making it one of the world's largest employers. The value of the eBay community adds up to a lot more than three.

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